What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-09-28 compared with 2022-09-13 · 154 added, 120 removed, 220 unchanged (55% of the section changed)

19 unchanged sentences

We are a leading provider

of intelligent wireless solutions including mobile hotspots, routers, trackers, and other devices.

Our designs integrate innovative hardware

and software, enabling machine-to-machine (M2M) applications and the Internet of Things (IoT).

Our M2M and IoT solutions include embedded

modules, modems and gateways built to deliver reliable always-on connectivity supporting a broad spectrum of applications based on 5G/4G

wireless technology.

We have a majority ownership

position in FTI, a research and development company located in Seoul, South Korea.

FTI primarily provides design and development services

to us for our wireless products.

of integrated wireless solutions utilizing the latest in 4G LTE (fourth generation long-term evolution) and 5G (fifth generation) technologies

including mobile hotspots, routers, CPEs (Customer Premise Equipment), and various trackers.

Our integrated software subscription services

provide users remote capabilities including mobile device management (MDM) and software defined wide area networking (SD-WAN).

We have majority ownership

of Franklin Technology Inc.

(FTI), a research and development company based in Seoul, South Korea.

FTI primarily provides design and development

services for our wireless products.

Our products are generally

1 unchanged sentence

Our global customer base

extends primarily from North America to countries in the Caribbean and South America, and Asia.

primarily extends from North America, the Caribbean and South America to countries in the Asia.

FACTORS THAT MAY INFLUENCE FUTURE RESULTS OF

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growth will be influenced largely by (1) the successful maintenance of our existing customers, (2) the rate of increase in demand for

wireless data products, (3) customer acceptance for our new products, (4) new customer relationships and contracts, and (5) our ability

to meet customers’ demands.

wireless data products, (3) customer acceptance of our new products, (4) new customer relationships and contracts, (5) our ability to

meet customers’ demands, (6) our ability to maintain good relationships with our manufacturing partners and suppliers, and (7) the

defect rates experienced by end users of our hardware and software products.

We have entered into and expect

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on our resources, resulting in increased operating, selling, and marketing expenses associated with such new customers.

We continuously evaluate the

performance of our hardware and software products to discover defects that can adversely affect our revenue, income, and the price of

If defects occur that customers believe are either severe in nature or excessively frequent in occurrence, customers could

stop buying our products and services and the value of our stock may decrease.

We are also seeing that demand

from end-users has been shifting in the post-pandemic economy as remote education and work from home trends are declining.

Current demand

for mobile device management (MDM) services has been declining.

We are working to improve and further enhance our software service offerings

to address this change in the market.

CRITICAL ACCOUNTING POLICIES

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We establish a provision for estimated warranty and returns.

Using historical averages, that provision for the year ended

June 30, 2022, was not material.

Using historical averages, that provisions for the years ended

June 30, 2023, and 2022, were not material.

Disaggregation of Revenue

In accordance with Topic 606,

606, we disaggregate revenue from contracts with customers into geographical regions and by the timing of when goods and services are

We determined that disaggregating revenue into these categories meets the disclosure objective in Topic 606, which is to

depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors.

we disaggregate revenue from contracts with customers into geographical regions and by the timing of when goods and services are transferred.

We determined that disaggregating revenue into these categories meets the disclosure objective in Topic 606, which is to depict how the

nature, amount, timing and uncertainty of revenue and cash flows are affected by regional economic factors.

Contract Balances

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as soon as control of an asset is transferred, and a receivable is established.

We, however, recognize a contract liability when a customer

We, however, recognize contract liability when a customer

prepays for goods and/or services, or we have not delivered goods under the contract since we have not yet transferred control of the

goods and/or services.

The balances of our trade receivables are as follows:

The balances of our trade

receivables are as follows:

June 30, 2023

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was immaterial as we did not have a significant amount of un-invoiced receivables in the periods ended June 30, 2023, and June 30, 2022.

Included in the Accounts Receivable

balance is a passthrough amount of $837,000.00.

These transactions were a direct result of an agreement between our vendor and our customer.

There is a corresponding balance of $837,000 in our Accounts Payable account to offset.

in the Accounts Receivable balance as of June 30, 2022, is a passthrough amount of $837,000.

These transactions were a direct result of

an agreement between our vendor and our customer.

There is a corresponding balance of $837,000 in our Accounts Payable account as of June

30, 2022, to offset.

These balances are removed as of June 30, 2023, since these pass-through charges are unlikely to ever be collected

due to the customer's refusal to pay.

There were no such balances as of June 30, 2023.

Our contract liabilities,

which are included in accrued liabilities on our balance sheet, are as follows:

which are included in accrued liabilities on our consolidated balance sheets, are as follows:

June 30, 2023

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Performance Obligations

A performance obligation

is a promise in a contract to transfer a distinct good or service to the customer and is the unit of measurement in Topic 606.

inception, we assess the products and services promised in our contracts with customers.

We then identify performance obligations to transfer

distinct products or services to the customer.

To identify performance obligations, we consider all the products or services promised

in the contract regardless of whether they are explicitly stated or are implied by customary business practices.

A performance obligation is

a promise in a contract to transfer a distinct good and/or service to the customer and is the unit of measurement in Topic 606.

inception, we assess the products and/or services promised in our contracts with customers.

We then identify performance obligations to

transfer distinct products and/or services to the customer.

To identify performance obligations, we consider all the products or services

promised in the contract regardless of whether they are explicitly stated or are implied by customary business practices.

Our performance obligations

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Revenue from products transferred to customers at a single point in time accounted for over 99% of net

sales for the year ended June 30, 2022.

Revenue for non-recurring engineering projects is based on the percentage completion of a project

and accounted for under 1% of net sales for the year ended June 30, 2022.

Most of our revenue that is recognized at a point in time is

for the sale of hot-spot router products.

Revenue from these contracts is recognized when the customer can direct the use of and obtain

substantially all of the benefits from the product, which generally coincides with title transfer at completion of the shipping process.

As of June 30, 2022, our contracts

do not contain any unsatisfied performance obligations, except for undelivered products.

sales for the year ended June 30, 2023 and 2022.

Revenue for non-recurring engineering projects is based on the percentage completion

of a project and accounted for under 1% of net sales for the years ended June 30, 2023 and 2022.

Most of our revenue that is recognized

at a point in time is for the sale of hot-spot router products.

Revenue from these contracts is recognized when the customer can direct

the use of and obtain substantially all of the benefits from the product, which generally coincides with title transfer at completion

of the shipping process.

As of June 30, 2023 and 2022,

our contracts do not contain any unsatisfied performance obligations, except for undelivered products.

Capitalized Product Development

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intangible assets in our consolidated balance sheets.

During the year ended June 30, 2022, we incurred $658,544 in capitalized product

development costs, and all costs incurred before technological feasibility is reached are expensed and included in our consolidated statements

of comprehensive income.

During the years ended June 30, 2023 and 2022, we incurred $1,631,376 and $658,544,

respectively in capitalized product development costs, and all costs incurred before technological feasibility is reached are expensed

and included in our consolidated statements of comprehensive income (loss).

Deferred income tax assets

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As of June 30, 2023, we have federal and state net operating loss carryforwards of approximately $2.5 million and $0.5

million, respectively.

As of June 30, 2022, we have federal and state net operating loss carryforwards of approximately $3.3 million and

$40,000, respectively.

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which was recognized on or after January 1, 2018, will carry forward indefinitely.

The federal net operating loss of approximately $0.8

million, which was recognized on or before December 31, 2017, will expire through 2035.

The state net operating loss of approximately $0.5

$40,000 will begin to expire through 2042.

million will begin to expire through 2043.

The utilization of net operating loss carryforwards may be subject to limitations under provisions

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Operating expenses

(Loss) income from operations

Other income, net

Net (loss) income before income taxes

Loss from operations

Other income (expense), net

Net loss before income taxes

Income tax (benefit) provision

Net (loss) income

non-controlling interest in net income of subsidiary

Net (loss) income attributable to Parent Company stockholders

non-controlling interest in net income (loss) of subsidiary

Net loss attributable to Parent Company stockholders

YEAR ENDED JUNE 30, 2023, COMPARED TO YEAR ENDED JUNE 30, 2022

NET SALES - Net sales

increased by $21,950,754, or 91.5%, to $45,948,516 for the year ended June 30, 2023 from $23,997,762 for the corresponding period of 2022.

For the year ended June 30, 2023, net sales by geographic regions, consisting of North America, the Caribbean and South America, and Asia

were $45,782,084 (99.6% of net sales), $0 (0.0% of net sales), and $166,432 (0.4% of net sales), respectively.

For the year ended June

30, 2022, net sales by geographic regions, consisting of North America, the Caribbean and South America, and Asia were $23,305,366 (97.1%

of net sales), $2,375 (0.0% of net sales), and $690,021 (2.9% of net sales), respectively.

Net sales in North America

increased by $22,476,718, or 96.4%, to $45,782,084 for the year ended June 30, 2023, from $23,305,366 for the corresponding period of

The increase in net sales in North America was primarily due to the new demand for two newly launched wireless products from a major

carrier customer (approximately $14M newly generated revenue) which did not purchase our products during the fiscal year 2022, and the

increased demand by approximately $11M, or 66%, for our wireless products from the existing major carrier customer compared to the fiscal

year 2022, which were offset by the decreased demands from other customers.

Net sales in the Caribbean

and South America decreased by $2,375, or 100%, to $0 for the year ended June 30, 2023, from $2,375 for the corresponding period of 2022.

Net sales in Asia decreased by $523,589, or 75.9%, to $166,432 for the year ended June 30, 2023, from $690,021 for the corresponding period

The decrease in net sales was primarily due to the one-time revenue generated from the material sales by FTI for the fiscal year

2022, which was partially offset by the revenue generated from the demand for one newly launched wireless product by FTI (approximately

$160,000) for the year ended June 30, 2023.

GROSS PROFIT - Gross

profit increased by $3,204,159, or 84.0%, to $7,020,742 for the year ended June 30, 2023, from $3,816,583 for the corresponding period

The gross profit in terms of net sales percentage was 15.3% for the year ended June 30, 2023, compared to 15.9% for the corresponding

period of 2022.

The increase in gross profit was primarily due to the change in net sales as described above.

The decrease in gross profit

in terms of net sales percentage was the mixed results of competitive selling prices and the increase in production costs of the launched

OPERATING EXPENSES

- Operating expenses increased by $578,842, or 6.6%, to $9,370,317 for the year ended June 30, 2023, from $8,791,475 for the corresponding

period of 2022.

Selling, general, and administrative

expenses increased by $942,309 to $5,451,653 for the year ended June 30, 2023, from $4,509,344 for the corresponding period of 2022.

increase in selling, general, and administrative expenses was primarily due to the increased payroll expenses (excluding payroll expense

for employees involved in research and development) and compensation expenses related to stock options granted for employees of approximately

$230,000 and $165,000, respectively, and the increased legal expenses of $195,000.

Research and development expenses

decreased by $363,467 to $3,918,664 for the year ended June 30, 2023, from $4,282,131 for the corresponding period of 2022.

in research and development expense was primarily due to the mix of the timing of research and development activities and the number of

active projects, which typically vary from period to period.

For the year ended June 30, 2023, the research and development expenses decreased

by approximately $450,000, which is partially offset by the increased payroll expenses for employees involved in research and development

of approximately $89,000.

OTHER INCOME, NET -

Other income, net decreased by $1,747,162, or 658.3%, to $1,481,743 for the year ended June 30, 2023, from $265,419 for the corresponding

period of 2022.

The decrease was primarily due to the loss from the agreement in principle to settle a legal action of $2,400,000 and

the increased loss from unfavorable changes in foreign currency exchange rates in FTI of approximately $184,000, which were offset by

the increased interest income earned from the money market accounts and certificates of deposit of approximately $388,000, the increased

unrealized gain from an investment account of approximately $340,000, and the increased gain from forgiven liabilities of approximately

YEAR ENDED JUNE 30, 2022, COMPARED TO YEAR ENDED JUNE 30, 2021

NET SALES - Net sales

decreased by $160,117,583, or 87.0%, to $23,997,762 for the year ended June 30, 2022, from $184,115,345 for the corresponding period of

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compensation expense related to stock options granted for employees and amortization expense of approximately $165,000 and $141,000, respectively.

Research and development expense

Research and development expenses

decreased by $363,467 to $3,918,664 for the year ended June 30, 2023, from $4,282,131 for the corresponding period of 2022.

in research and development expense was primarily due to the decreased payroll expense for employees involved in research and development

and other research and development costs of approximately $104,000 and $182,000, respectively.

The decrease in research and development expense was primarily due to the mix of the timing of research and development activities and

the number of active projects, which typically vary from period to period.

For the year ended June 30, 2023, the research and development

expenses decreased by approximately $450,000, which is partially offset by the increased payroll expenses for employees involved in research

and development of approximately $89,000.

OTHER INCOME, NET -

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the money market accounts and certificates of deposit.

YEAR ENDED JUNE 30, 2021, COMPARED TO YEAR ENDED JUNE 30, 2020

NET SALES - Net sales

increased by $109,043,047, or 145.3%, to $184,115,345 for the year ended June 30, 2021 from $75,072,298 for the corresponding period of

For the year ended June 30, 2021, net sales by geographic regions, consisting of North America, the Caribbean and South America,

and Asia were $183,771,146 (99.8% of net sales), $17,500 (0.0% of net sales), and $326,699 (0.2% of net sales), respectively.

year ended June 30, 2020, net sales by geographic regions, consisting of North America, the Caribbean and South America, and Asia were

$74,839,778 (99.7% of net sales), $0 (0.0% of net sales), and $232,520 (0.3% of net sales), respectively.

Net sales in North America

increased by $108,931,368, or 145.6%, to $183,771,146 for the year ended June 30, 2021, from $74,839,778 for the corresponding period

The increase in net sales in North America resulted primarily from increased demand for wireless connectivity due to people working

and attending school remotely.

High volume sales to school districts rapidly rolling out remote learning programs was a significant driver

for increased sales through our primary customers due to the Covid-19 pandemic.

Net sales also increased due to the timing of orders placed

by a carrier customer, from which a significant portion of our revenue was derived (approximately 63% of our consolidated net sales for

this period).

Net sales in the Caribbean and South America increased by $17,500, or 100.0%, to $17,500 for the year ended June 30, 2021,

from $0 for the corresponding period of 2020.

Net sales in Asia increased by $94,179, or 40.5%, to $326,699 for the year ended June 30,

2021, from $232,520 for the corresponding period of 2020.

The increase in net sales was primarily due to product development service revenue

generated by FTI, which typically varies from period to period.

GROSS PROFIT - Gross

profit increased by $17,939,536, or 123.5%, to $32,464,021 for the year ended June 30, 2021, from $14,524,485 for the corresponding period

The gross profit in terms of net sales percentage was 17.6% for the year ended June 30, 2021, compared to 19.3% for the corresponding

period of 2020.

The increase in gross profit was primarily due to the change in net sales as described above.

The decrease in gross profit

in terms of net sales percentage was primarily due to competitive selling prices and the increase in production costs.

OPERATING EXPENSES

- Operating expenses increased by $2,199,350, or 29.5%, to $9,645,711 for the year ended June 30, 2021, from $7,446,361 for the corresponding

period of 2020.

Selling, general, and administrative

expenses increased by $1,377,989 to $5,077,848 for the year ended June 30, 2021, from $3,699,859 for the corresponding period of 2020.

The increase in selling, general, and administrative expenses was primarily due to increased payroll expense as well as compensation expense

related to stock options granted for employees (approximately $560,000), increased bad debt expense of approximately $340,000, increased

professional fees of approximately $130,000, and increased shipping and handling charges of approximately $80,000.

Research and development expense

increased by $821,361 to $4,567,863 for the year ended June 30, 2021, from $3,746,502 for the corresponding period of 2020.

in research and development expense was primarily due to the increased payroll expense for employees involved in research and development

and other research and development costs.

OTHER INCOME, NET -

Other income, net increased by $396,403, or 179.6%, to $617,167 for the year ended June 30, 2021, from $220,764 for the corresponding

period of 2020.

The increase was primarily due to the gain from the forgiveness of the Payroll Protection Plan loan and increased product

development funding received by FTI from a government entity, which was partially offset by the loss from the unfavorable changes in foreign

currency exchange rates in FTI and the decreased interest income earned from the money market accounts and certificates of deposit.

LIQUIDITY AND CAPITAL RESOURCES

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and intentions to fund our operations over a reasonable period of time, which we define as the twelve-month period ending June 30, 2023.

For purposes of liquidity disclosures, we assess the likelihood that we have sufficient available working capital and other principal

For the purposes of liquidity disclosures, we assess the likelihood that we have sufficient available working capital and other principal

sources of liquidity to fund our operating activities and obligations as they become due.

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OPERATING ACTIVITIES

– Net cash used in operating activities for the year ended June 30, 2022, was $7,407,355, and net cash provided by operating activities

for the year ended June 30, 2021 was $12,104,199.

– Net cash used in operating activities for the years ended June 30, 2023 and 2022 were $1,882,114 and $7,407,355, respectively.

The $1,882,114 in net cash

used in operating activities for the year ended June 30, 2023 was primarily due to the increase in accounts receivable of $7,601,489 as

well as our operating results (net loss adjusted for depreciation, amortization, and other non-cash charges), which was offset by the

increase of accounts payable and accrued legal contingency expense of $4,905,499 and $2,400,000, respectively.

The $7,407,355 in net cash

used in operating activities for the year ended June 30, 2022 was primarily due to the increase in inventory and decrease in accounts

1 unchanged sentence

and other non-cash charges), which was offset by the decrease of accounts receivable of $1,205,938.

The $12,104,199 in net cash

provided by operating activities for the year ended June 30, 2021, was primarily due to the decrease in accounts receivable and inventory

of $13,103,973 and $10,807,884, respectively, as well as our operating results (net income adjusted for depreciation, amortization and

other non-cash charges), which was offset by the decrease in accounts payable of $32,364,266.

INVESTING ACTIVITIES

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The $12,109,183 in net cash

used in investing activities for the year ended June 30, 2022, was primarily due to the purchases of short-term investments and capitalized

product development of $10,950,625 and $658,544, respectively.

The $722,520 in net cash used in investing activities for the year ended

June 30, 2021, was primarily due to the purchases of capitalized product development and property and equipment of $694,909 and $21,043,

respectively.

used in investing activities for the year ended June 30, 2023 was primarily due to the purchases of short-term investments of $10,391,654

and capitalized product development of $1,631,376.

The $11,675,028 in net cash used in investing activities for the year ended June 30,

2022, was primarily due to the purchases of short-term investments and capitalized product development of $10,950,625 and $658,544, respectively.

FINANCING ACTIVITIES

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The $42,943 in net cash provided

by financing activities for the year ended June 30, 2022, was from the exercise of stock options.

The $6,074,759 in net cash provided

by financing activities for the year ended June 30, 2021, was primarily due to the $6,000,008 aggregate purchase price, paid to us in

cash by investors for the issuance of 923,078 shares of Common Stock, as well as $74,751 received from the exercise of stock options.

by financing activities for the year ended June 30, 2023 was from the exercise of stock options of $45,000, which was offset by loan to

an employee of $2,057.

The $75,445 in net cash provided by financing activities for the year ended June 30, 2022 was from the exercise

of stock options.

OFF-BALANCE SHEET ARRANGEMENTS

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Payments due by June 30,

Legal contingency expense

Operating lease

Total Obligations

On April 16, 2021, an action

was filed in the United States District Court for the Southern District of California against the Company and two of its officers relating

to the timing of the disclosure of a recall of certain Jetpack products supplied by the Company to Verizon.

The agreement was memorialized

in a memorandum of understanding (the “Memorandum of Understanding”) which was fully executed on May 3, 2023.

The Memorandum

of Understanding was formalized in a Stipulation and Agreement of Settlement (the “Settlement Agreement”) that was executed

on May 23, 2023, and filed with the Court on May 24, 2023.

Under the terms of the Settlement Agreement, the Company will pay $2.4 million

(the “Settlement Amount”) into an escrow account maintained by Huntington National Bank subject to the approval of the Court.

The terms and conditions expressly provided within the Settlement Agreement, such Settlement fully, finally and forever settles, releases,

resolves and dismisses with prejudice all claims asserted against the Company.

This agreement is still pending final approval by the Federal

Court as of the date of this filing.

Refer to ITEM 2.

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We might not be able

to affect these alternative strategies to raise funds including credit lines and loans, on satisfactory terms, if at all.

to effect these alternative strategies to raise funds including credit lines and loans, on satisfactory terms, if at all.

QUANTITATIVE AND QUALITATIVE

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis